RBI/2007-2008/41 DBOD.No.
Dir. BC. 7/13.03.00/2006-07 July
2, 2007 Aashadha 11, 1929(Saka)
All Scheduled Commercial Banks (Excluding
RRBs) Dear
Sir Master
Circular on Interest Rates on Rupee Deposits held in Domestic, Ordinary Non-Resident
(NRO) and Non-Resident (External) (NRE) Accounts Please
refer to the Master Circular DBOD No. Dir. BC. 6/13.03.00/ 2006-07 dated July
1, 2006 consolidating the instructions/guidelines issued to banks till June 30,
2006 relating to Interest Rates on Rupee Deposits held in
Domestic, Ordinary Non-Resident (NRO) and Non-Resident (External) (NRE) Accounts.
The Master Circular has been suitably updated by incorporating the instructions
issued up to June 30, 2007 and has been placed on the RBI website (http://www.rbi.org.in). Yours
faithfully (P.
Vijaya Bhaskar ) Chief
General Manager
Master
Circular on Interest Rates on Rupee Deposits held in Domestic, Ordinary Non-Resident
(NRO) and Non-Resident (External) (NRE) Accounts Purpose To
consolidate the directives on interest rates on Rupee Deposits held in Domestic,
Ordinary Non-Resident (NRO) and Non-Resident (External) (NRE) Accounts issued
by Reserve Bank of India from time to time. Classification
A statutory directive issued by the Reserve Bank in exercise of the powers conferred
under Section 35 A of the Banking Regulation Act, 1949. Previous
instructions consolidated This
Master Circular consolidates the instructions on the above subject contained in
the circulars listed in Annex 4. Scope
of Application To
all Scheduled Commercial Banks, excluding Regional Rural Banks. Structure 1.
INTRODUCTION 2.
GUIDELINES 2.1
Definitions 2.2 Minimum tenor and rates of interest payable
on Savings deposits and on Term deposits. 2.3. Payment of
interest on fixed deposit - Method of calculation of interest 2.4
Additional interest to AGID, NGIF and AFGIS 2.5 Discretion
to Regional Rural Bank/Local Area Bank to pay additional interest 2.6
Discretion to pay additional interest not exceeding one percent on deposits
of bank’s staff and their exclusive associations 2.7 Discretion
to pay additional interest on deposits of Chairman and Managing Director and Executive
Directors of the bank 2.8 Discretion to pay interest on
current account maintained by RRBs with sponsor bank 2.9
Discretion to pay interest on the minimum credit balance in the composite cash
credit account of a farmer 2.10 Deposit Scheme for Senior
Citizens 2.11 Premature withdrawal of term deposit 2.12
Conversion of term deposit, deposit in the form of daily deposit or recurring
deposit for reinvestment in term deposit 2.13 Renewal of
Overdue deposits 4
Advance against term deposit – Manner of charging interest
2.14
Margin on advance against term deposit 2.15 Restrictions
on advances against NR(E)RA Deposits - Quantum
of Loans
2.17 Interest payable on the deposit account
of a deceased depositor 2.18 Notifying RBI regarding change
in interest on deposits and also the break-up of deposits according to different
interest rate ranges 2.19 Addition or deletion of the name/s
of joint account holders 2.20 Rounding off of transactions 2.21
Issue of term deposit receipt 2.22 Payment of interest
on term deposit maturing on Sunday/ holiday/non-business working day 2.23
Deposit Mobilisation Schemes 2.24 Minimum balance in savings
bank accounts 2.25 No-frills account 2.26
Exemptions 2.27 Prohibitions 3.
ANNEX 1.
INTRODUCTION
1.1. Domestic Deposits Prior
to reforms, RBI prescribed the deposit rates and the maturities on deposits that
could be offered by banks. There was no price competition among suppliers of banking
services and the customer had only limited products to choose from. As a result
of deregulation, barring saving deposits, banks are free to fix their own deposit
rates for different maturities, which implies choices for the depositor. Also,
a customer can earn interest on a term deposit for a minimum period of 7 days.
Banks are now also free to offer varying rates of interest for different sizes
of deposits above a cut-off point, since the cost of transaction differs by size.
Earlier, RBI decided the penalty structure for premature withdrawal of deposits,
but this has now been left to each bank so that banks can manage interest rates. With
effect from October 22, 1997, RBI has given the freedom to commercial banks to
fix their own interest rates on domestic term deposits of various maturities with
the prior approval of their respective Board of Directors/Asset Liability Management
Committee (ALCO). However, RBI regulates interest rates on savings bank accounts
and the savings bank interest rate is currently fixed at 3.5% per annum, which
is unchanged from March 1, 2003. A
domestic rupee account may be opened as current, savings or term deposit.
1.2. Ordinary Non-Resident (NRO) NRIs
can open Non-Resident Ordinary (NRO) deposit accounts for collecting their funds
from local bonafide transactions. NRO accounts being Rupee accounts, the exchange
rate risk on such deposits is borne by the depositors themselves. When a resident
becomes a NRI, his existing Rupee accounts are designated as NRO. Such accounts
also serve the requirements of foreign nationals resident in India. NRO accounts
can be maintained as current, saving, recurring or term deposits. While
the principal of NRO deposits is non-repatriable, current income and interest
earning up to US $ 1 million per calendar year is repatriable out of the NRO balances/
sale proceeds of assets held in India. Interest income from NRO accounts is not
exempt from income tax, as is the case with domestic deposits. 1.3.
Non-Resident (External) (NRE) Accounts The
Non-Resident (External) Rupee Account NR(E)RA scheme, also known as the NRE scheme,
was introduced in 1970. Any NRI can open an NRE account with funds remitted to
India through a bank abroad. This is a repatriable account and transfer from another
NRE account or FCNR(B) account is also permitted. A NRE rupee account may be opened
as current, savings or term deposit. Local payments can be freely made from NRE
accounts. Since this account is maintained in Rupees, the depositor is exposed
to exchange risk. NRIs / PIOs have the option to credit the current income to
their Non-Resident (External) Rupee accounts, provided the authorised dealer is
satisfied that the credit represents current income of the non-resident account
holders and income-tax thereon has been deducted / provided for. 1.4.
Interest Rate Regulation Prior
to 1990s, in line with the regulation of domestic deposit rates, interest rates
on various NRI deposit schemes were regulated. As a first step towards flexibility,
the detailed maturity-wise prescriptions were rationalized in 1992 for NRE deposits,
in line with the flexibility provided for domestic deposits. With a view to aligning
the maturity structure of NRE and domestic deposits, interest rates on NRE term
deposits of maturity over 2 years were freed effective April 4, 1996 while those
for maturity over 1 year were freed effective April 16, 1997. Effective September
13, 1997, banks were given complete freedom to decide interest rates across all
maturities. In
response to changing conditions in the financial markets, interest rates on NRE
term deposits were linked to the international rates by way of a ceiling of 250
basis points over and above the US Dollar LIBOR/Swap rates of corresponding maturities,
effective July 17, 2003. The ceiling rates were progressively reduced and brought
down to LIBOR/SWAP rates for corresponding maturities with effect from close of
business as on April 24, 2007. Alongside, the NRE savings deposits rate was delinked
from the domestic savings deposits rate and the ceiling NRE savings deposits rate
was fixed at 6-month US Dollar LIBOR/Swap rate effective April 17, 2004. However,
with effect from the close of business in India on November 17, 2005, the interest
rates on NRE saving deposits are the same as applicable to domestic savings deposits. 2.
GUIDELINES Commercial
banks should not pay interest on deposits of money accepted or renewed by them
in Domestic, Ordinary Non-Resident (NRO) and Non-Resident (External) Accounts
(NRE) except in accordance with the rates specified in the Annex
1 and Annex
2 hereto,
as applicable, and on the terms and conditions specified in the paragraphs below. 2.1
Definitions For
the purpose of this circular, (a)
"Demand liabilities" and "Time liabilities" means the liabilities
as shown in the return submitted by the bank under sub-section (2) of Section
42 of the Reserve Bank of India Act, 1934; (b)
"Demand deposit" means a deposit received by the bank, which is withdrawable
on demand; (c)
"Savings deposit" means a form of demand deposit which is a deposit
account whether designated as "Savings Account", "Savings Bank
Account", "Savings Deposit Account" or other account by whatever
name called which is subject to the restrictions as to the number of withdrawals
as also the amounts of withdrawals permitted by the bank during any specified
period; (d)
"Term deposit" means a deposit received by the bank for a fixed period
and which is withdrawable only after the expiry of the said fixed period and shall
also include deposits such as Recurring/Cumulative/Annuity/Reinvestment deposits,
Cash Certificates, and so on; (e)
"Notice deposit" means term deposit for specific period but withdrawable
on giving at least one complete banking day’s notice; (f)
"Current Account" means a form of demand deposit wherefrom withdrawals
are allowed any number of times depending upon the balance in the account or up
to a particular agreed amount and shall also be deemed to include other deposit
accounts which are neither Savings Deposit nor Term Deposit; (g)
"Countervailing interest" means any benefit of interest allowed on any
account in the nature of current account maintained with the bank by its borrower; (h)
"Budgetary allocation" means the allocation of funds by the Government
made through the budget, wherein all the Government’s expenditure is reflected.
Any institution, irrespective of the fact that it is a Government Department,
Semi-Government or Quasi-Government Body, which receives grants, loans or subsidies
from the Government is said to depend on budgetary allocation. Government grants
to institutions are also in the nature of the budgetary allocation. Government’s
subscription to the share capital of these institutions also forms part of the
budgetary allocation. Local bodies like Municipal Corporations, Zilla Parishads,
Taluka Panchayats and Gram Panchayats are given grants in the nature of ‘compensation
and assignments’, which also form part of budgetary allocation, although taxes
collected by these bodies are not covered under the definition and scope of budgetary
allocation of Central and State Governments; (i)
"Public Sector Bank" means the State Bank of India constituted under
the State Bank of India Act, 1955 or any subsidiary bank as defined in clause
(k) of Section 2 of the State Bank of India (Subsidiary Banks) Act, 1959 or any
corresponding new bank as defined in clause (b) of Section 2 of the Banking Companies
(Acquisition and Transfer of Undertakings) Act, 1970 or Banking Companies (Acquisition
and Transfer of Undertakings) Act, 1980. Note: NRO/NRE
deposits can be accepted only by banks, which are authorized by Reserve Bank to
accept such deposits. 2.2
Minimum tenor and rates of interest payable on Savings deposits and on Term deposits.
2.2.A.
Minimum tenor (i)
Domestic/ NRO term deposits The
minimum tenor of domestic/ NRO term deposits is 7 days. Prior to November 1, 2004,
banks were permitted to accept term deposits of Rs. 15 lakh and above for a minimum
maturity period of 7 days and, in case of term deposits of less than 15 lakh,
the minimum maturity period was 15 days. With effect from November 1, 2004, the
minimum tenor of domestic/NRO term deposits below Rs. 15 lakh has been reduced
from 15 days to 7 days. (ii)
NRE deposits With
effect from April 29, 2003, the minimum maturity period for NRE deposits has been
raised from 6 months to 1 year, making the range of the maturity period for fresh
NRE term deposits from one to three years, in line with FCNR(B) deposits. However,
banks are allowed to accept NRE deposits above three years from their Asset Liability
point of view, provided the rate of interest on such long term deposits is not
higher than that applicable to 3 year deposits. 2.2.B.
Payment of interest (i)
Banks should pay interest on savings deposits and term deposits, including NRE
deposits, at the rates specified in Annex 1 and Annex
2 to this circular. A bank must obtain prior approval of its Board/Asset
Liability Management Committee (if powers are delegated by the Board) for fixing
interest rates of various maturities. (ii)
Such interest should be paid at quarterly or longer rests. (iii)
In the case of savings deposits, interest should be calculated on the minimum
balance to the credit of the deposit account during the period from the 10th
to the last day of each calendar month and credited to the account only when it
is Re.1/- or more. 2.2.C. Floating
Rate Deposits On
Domestic Term Deposits, a bank may offer floating rate clearly linked to an anchor
rate. In order to ensure transparency, banks should not use internal or derived
rates while offering floating rate deposit products. Only market-based rupee benchmark
rates, which are directly observable and transparent to the customer, should be
used by banks for pricing their floating rate deposits. 2.3.
Payment of interest on fixed deposit - Method of calculation of interest Indian
Banks’ Association (IBA) Code for Banking Practice has been issued by IBA for
uniform adoption by the Member Banks. The Code is intended to promote good banking
practices by setting out minimum standards, which Member Banks should follow in
their dealings with customers. IBA, for the purpose of calculation of interest
on domestic term deposit, has prescribed that on deposits repayable in less than
three months or where the terminal quarter is incomplete, interest should be paid
proportionately for the actual number of days reckoning the year at 365 days.
Some banks are adopting the method of reckoning the year at 366 days in a Leap
year and 365 days in other years. While banks are free to adopt their methodology,
they should provide information to their depositors about the manner of calculation
of interest appropriately while accepting the deposits and display the same at
their branches. 2.4
Additional interest to Army Group Insurance Directorate (AGID),Naval Group Insurance
Fund (NGIF) and Air-Force Group Insurance Society (AFGIS) A
Public Sector Bank is permitted to pay additional interest of 1.28 per cent per
annum over and above the normal rate of interest permissible in terms of directives
on interest rates on deposits issued by Reserve Bank of India, from time to time,
on term deposits for 2 years and above of Army Group Insurance Directorate (AGID),
Naval Group Insurance Fund (NGIF) and Air-Force Group Insurance Society (AFGIS)
only, provided such deposits are not in any way linked with payment of insurance
premia by the bank. 2.5.
Discretion to Regional Rural Banks /Local Area Banks to pay additional interest Regional
Rural Banks/Local Area Banks may, at their discretion, allow additional interest
of half percent per annum on savings deposits. These banks are, however, encouraged
not to pay any additional interest on saving bank accounts over and above what
is payable by commercial banks.
2.6. Discretion to pay additional interest not exceeding one percent
on deposits of bank’s staff and their exclusive associations A
bank may, at its discretion, allow additional interest at a rate not exceeding
one per cent per annum over and above the rate of interest stipulated in Annex
1 & Annex 2 to this circular subject to following
conditions: 2.6.1. In
respect of a savings or a term deposit account opened in the name of: (a)
a member or a retired member of the bank’s staff, either singly or jointly with
any member or members of his/her family; or (b)
the spouse of a deceased member or a deceased retired member of the bank’s staff;
and (c) an Association
or a fund, members of which are members of the bank’s staff; A
bank should obtain a declaration from the depositor concerned, that the monies
deposited or which may, from time to time, be deposited into such account belong
to the depositor as stated in clauses (a) to (c) above. 2.6.2. For
the purposes of sub-paragraph 2.6.1. - (i)
"a member of the bank’s staff" means a person employed on a regular
basis, whether full-time or part-time, and includes a person recruited on probation
or employed on a contract of a specified duration or on deputation and an employee
taken over in pursuance of any scheme of amalgamation, but does not include a
person employed on casual basis. (a)
In the case of employees taken on deputation from another bank, the bank from
which they are deputed may allow additional interest in respect of the savings
or term deposit account opened with it during the same period of deputation; (b)
In the case of persons taken on deputation for a fixed duration, or on a contract
of a fixed duration, the benefit will cease to accrue on the expiry of the term
of deputation or contract, as the case may be. (ii)
"A retired member of the bank’s staff" means an employee retiring whether
on superannuation or otherwise as provided in the bank’s Service/Staff Regulations,
but does not include an employee retired compulsorily or in consequence of disciplinary
action; (iii)
"Family" means and includes the spouse of the member/retired member
of the bank’s staff and the children, parents, brothers and sisters of the member/retired
member of the bank’s staff, who are dependent on such member/retired member, but
does not include legally separated spouse; 2.6.3. Payment
of additional interest is subject to the following conditions, namely: (i)
The additional interest is payable only so long as the person continues to be
eligible for the same and in case of his ceasing to be so eligible, till the maturity
of a term deposit account; (ii)
In the case of employees taken over pursuant to the scheme of amalgamation, the
additional interest is allowed only if the interest at the contractual rate together
with the additional interest does not exceed the rate, which could have been allowed
if such employees were originally employed by the bank. 2.6.4. Bank
Employees’ Federations in which bank employees are not direct members are not
eligible for additional interest. 2.6.5.
In case of Domestic deposits, it will be in order for banks to give their retired
staff, who are senior citizens, the benefit of higher interest rates as admissible
to senior citizens (60 years of age or above) over and above the additional interest
of not exceeding one per cent payable to them by virtue of their being retired
members of the banks' staff. 2.6.6. In
the case of Non-Resident (External) deposits of staff members, existing or retired,
interest rate including any additional interest paid to them by virtue of their
being staff members, should not exceed the ceiling stipulated by RBI. 2.7.
Discretion to pay additional interest not exceeding one per cent on deposits of
Chairman and Managing Director and Executive Directors of the bank A
bank may, at its discretion, pay additional interest not exceeding one per cent
per annum over and above the rate of interest stipulated in Annex
1 & Annex 2 to this circular on deposits accepted/renewed
from Chairman, Chairman & Managing Director, Executive Director or such other
Executive appointed for a fixed tenure. However, they are eligible to get the
benefit under paragraph 2.6 above only during the period of their tenure. 2.8.
Discretion to pay interest on current accounts maintained by Regional Rural Banks
with sponsor banks Banks
may pay interest on current account of a Regional Rural Bank sponsored by them.
However, banks are encouraged not to pay interest on the current accounts maintained
by RRBs with them. 2.9.
Discretion to pay interest on the minimum credit balance in the composite cash
credit account of a farmer A
bank may, at its discretion, pay interest at a rate based on its perception and
other relevant factors on the minimum credit balance in the composite cash credit
account of a farmer during the period from the 10th to the last day
of each calendar month. 2.10.
Deposit Scheme for Senior Citizens Banks
have been permitted to formulate, with the approval of their Boards of Directors,
fixed deposit schemes specifically for resident Indian senior citizens offering
higher and fixed rates of interest as compared to normal deposits of any size.
These schemes should also incorporate simplified procedures for automatic transfer
of deposits to nominee of such depositors in the event of death. 2.
11. Premature withdrawal of term deposit(i)
A bank, on request from the depositor, should allow withdrawal of a term deposit
before completion of the period of the deposit agreed upon at the time of making
the deposit. The bank will have the freedom to determine its own penal interest
rate of premature withdrawal of term deposits. The bank should ensure that the
depositors are made aware of the applicable penal rate along with the deposit
rate. While prematurely closing a deposit, interest on the deposit for the period
that it has remained with the bank will be paid at the rate applicable to the
period for which the deposit remained with the bank and not at the contracted
rate. No interest is payable, where premature withdrawal of deposits takes place
before completion of the minimum period prescribed. However, the bank, at its
discretion, may disallow premature withdrawal of large deposits held by entities
other than individuals and Hindu Undivided Families. The bank should, however,
notify such depositors of its policy of disallowing premature withdrawal in advance,
i.e., at the time of accepting such deposits. (ii)
In the case of premature withdrawal of NRE term deposits for conversion into Resident
Foreign Currency (RFC) Account, the bank should not levy any penalty for premature
withdrawal. If such a deposit has not run for a minimum period of 1 year, the
bank may, at its discretion, pay interest at a rate not exceeding the rate payable
on savings deposits held in RFC accounts, provided the request for such a conversion
is made by the NRE account holder immediately on return to India. (iii)
Conversion of NRE deposit into FCNR(B) deposit and vice versa before maturity
should be subject to the penal provision relating to premature withdrawal. (iv)
Conversion of NRSR/NRNR deposit into NRO deposit before maturity will be subject
to the penal provision relating to premature withdrawal. (v)
In view of the discontinuance of NRNR/NRSR schemes with effect from April 1, 2002,
the proceeds of NRNR deposits can be credited to NRE accounts on maturity but
not to FCNR(B) accounts, while proceeds of NRSR accounts can be credited on maturity
to NRO accounts only. In case of premature withdrawal of NRNR/NRSR deposits, the
proceeds should be credited to NRO accounts only. 2.12.
Conversion of a term deposit, a deposit in the form of daily deposit or a recurring
deposit for reinvestment in term deposit A
bank, on a request from the depositor, should allow conversion of a term deposit,
a deposit in the form of daily deposit or recurring deposit, to enable the depositor
to immediately reinvest the amount lying in the aforesaid deposits with the same
bank in another term deposit. The bank should pay interest in respect of such
a term deposit in the manner indicated in paragraph 2.11 above without reducing
the interest by way of penalty as stated in the said paragraph provided that the
deposit remains with the bank after reinvestment for a period longer than the
remaining period of the original contract. 2.13.
Renewal of Overdue deposits All
aspects concerning renewal of overdue deposits may be decided by individual banks
subject to their Board laying down a transparent policy in this regard and the
customers being notified of the terms and conditions of renewal including interest
rates, at the time of acceptance of deposit. The policy should be non-discretionary
and non-discriminatory. 2.14. Advance
against term deposit - Manner of charging interest (a)
When an advance is granted against a term deposit and the deposit stands in the
name of - (i)
the borrower, either singly or jointly; (ii)
one of the partners of a partnership firm and the advance is made to the said
firm; (iii) the proprietor
of a proprietary concern and the advance is made to such a concern; (iv)
a ward whose guardian is competent to borrow on behalf of the ward and where the
advance is made to the guardian of the ward in such a capacity; the
bank would be free to charge interest rate without reference to its Benchmark
Prime Lending Rate (BPLR) including advances granted against NRE term deposits
and repaid in Foreign Currency or Rupees. If
the term deposit against which an advance was granted is withdrawn before completion
of the prescribed minimum maturity period, such an advance should not be treated
as advance against the term deposit and interest should be charged as prescribed
in terms of the Reserve Bank of India’s directive on Interest Rates on Advances
issued from time to time. (b)
When an advance is granted against a term deposit which is not in the nature of
those at items (i) to (iv) in sub-clause (a) above, a bank would be free to charge
interest rate without reference to the Benchmark Prime Lending Rate, provided
the advance is up to Rs.2 lakh. However, if the advance exceeds Rs. 2 lakh, the
bank should charge interest at the rate prescribed in terms of Reserve Bank of
India’s directive relating to Interest Rates on Advances issued from time to time. A
bank, at its discretion, should not apply the rate of interest as stipulated at
(a) above in the case of advances up to Rs.3 lakh granted to a member/retired
member of the bank’s staff or the spouse of a deceased member/retired member of
the bank’s staff against their term deposits specified in paragraph 2.6 above. (c)
The account holder of NRE savings deposits can withdraw the savings deposits at
any time and therefore, banks should not mark any type of lien, direct or indirect,
against these deposits. (As regards domestic saving deposits, banks may follow
the guidelines issued by IBA / existing practices approved by their Board in this
regard.) 2.15. Margin
on advance against term deposit The
decision in regard to margin against term deposit has been left to the discretion
of individual banks subject to their Board laying down a transparent policy in
this regard. 2.16. Restrictions
on advances against NR(E)RA Deposits - Quantum of loans The
Third Quarter Review of Annual Statement on Monetary Policy for the Year 2006-07
(para 86), has observed that keeping in view the objective of making these facilities
available to individual Non-Resident Indians (NRIs) and considering the prevailing
monetary conditions, there is merit in avoiding upward pressure on asset prices
in sensitive sectors through utilisation of this facility. Therefore, banks are
prohibited from granting fresh loans or renewing existing loans in excess of Rupees
twenty (20) lakh against NR(E)RA and FCNR(B) deposits either to the depositors
or third parties. Accordingly, banks should not grant fresh loans or renew existing
loans in excess of Rupees twenty (20) lakh against NR(E)RA deposits, either to
depositors or to third parties, with effect from January 31, 2007. Banks should
not undertake artificial slicing of the loan amount to circumvent the ceiling. 2.17. Interest
payable on the deposit account of deceased depositor (a)
In the case of a term deposit standing in the name/s of (i)
a deceased individual depositor, or (ii) two or more joint depositors, where
one of the depositor has died, the
criterion for payment of interest on matured deposits in the event of death of
the depositor in the above cases has been left to the discretion of individual
banks subject to their Board laying down a transparent policy in this regard. (b)
In the case of balances lying in current account standing in the name of a deceased
individual depositor/sole proprietorship concern, interest should be paid only
from 1st May, 1983, or from the date of death of the depositor, whichever
is later, till the date of repayment to the claimant/s at the rate of interest
applicable to savings deposit as on the date of payment. Note: In
the case of a NRE deposit, when the claimants are residents, the deposit on maturity
should be treated as a domestic rupee deposit and interest should be paid for
the subsequent period at a rate applicable to a domestic deposit of similar maturity.
2.18. Notifying
RBI regarding change in interest on deposits and also the break-up of deposits
according to different interest rate ranges As
per the instructions issued in September, 1997, as and when the deposit rate structure
and PLR are revised, banks were required to furnish the same to RBI, Department
of Banking Operations and Development (DBOD) in the prescribed proforma (Return
No. 7 of Manual of Instructions). Since banks submit similar information to RBI’s
Monetary Policy Department, submission of the return to DBOD has been discontinued.
2.19.
Addition or deletion of the name/s of joint account holders A
bank may, at the request of all the joint account holders, allow the addition
or deletion of name/s of joint account holder/s if the circumstances so warrant
or allow an individual depositor to add the name of another person as a joint
account holder. However, in no case should the amount or duration of the original
deposit undergo a change in any manner in case the deposit is a term deposit. A
bank may, at its discretion, and at the request of all the joint account holders
of a deposit receipt, allow the splitting up of the joint deposit, in the name
of each of the joint account holders only, provided that the period and the aggregate
amount of the deposit do not undergo any change. Note:
NRE deposits should be held jointly with non-residents only. NRO accounts
may be held by non-residents jointly with residents. 2.20.
Rounding off of transactions All
transactions, including payment of interest on deposits/charging of interest on
advances, should be rounded off to the nearest rupee; i.e., fractions of 50 paise
and above shall be rounded off to the next higher rupee and fraction of less than
50 paise shall be ignored. Issue prices of cash certificates should also be rounded
off in the same manner. In
the light of a judgement of the High Court of Gujarat, Ahmedabad, banks were advised
that they should ensure that cheques/ drafts issued by clients containing fractions
of a rupee are not rejected or dishonoured by them. Banks should also review the
practice being followed by them in this regard and take necessary steps including
through issue of internal circulars, etc, to ensure that the concerned staff are
well versed with these instructions so that the general public does not suffer.
Further, banks should ensure that appropriate action is taken against members
of their staff who are found to have refused to accept cheques/ drafts containing
fractions of a rupee. Any bank violating the aforesaid instructions would be liable
to be penalised under the provisions of the Banking Regulation Act, 1949. 2.21.
Issue of term deposit receipt A
bank should issue term deposit receipt indicating therein full details, such as,
date of issue, period of deposit, due date, applicable rate of interest, etc.
2.22. Payment
of interest on term deposit maturing on Sunday/holiday/non-business working day In
respect of a term deposit maturing for payment on a Sunday or a holiday or a non-business
working day (or Saturday in case of NRE deposits), the bank should pay interest
at the originally contracted rate on the deposit amount for the Sunday/holiday/non-business
working day (as also Saturday in case of NRE deposits) intervening between the
date of the expiry of the specified term of the deposit and the date of payment
of the proceeds of the deposit on the succeeding working day. 2.23.
Deposit Mobilisation Schemes Banksneed
not obtain prior concurrence of the Indian Banks’ Association or prior approval
of the RBI for introduction of their new domestic deposit mobilisation schemes.
However, before launching new domestic deposit mobilisation schemes with the approval
of their respective Boards, banks should ensure that the provisions of RBI directives
on interest rates on deposits, premature withdrawal of term deposits, sanction
of loans/advances against term deposits, etc., issued from time to time, are strictly
adhered to. Any violation in this regard will be viewed seriously and may attract
penalty under the Banking Regulation Act, 1949. 2.24.
Minimum balance in savings bank accounts At
the time of opening the accounts, banks should inform their customers in a transparent
manner the requirement of maintaining minimum balance and levying of charges etc.,
if the minimum balance is not maintained. Any charge levied subsequently should
be transparently made known to all depositors in advance with one month's notice.
The banks should inform, at least one month in advance, the existing account holders
any change in the prescribed minimum balance and the charges that may be levied
if the prescribed minimum balance is not maintained. 2.25. 'No-frills'
account With
a view to achieving the objective of greater financial inclusion, all banks should
make available a basic banking 'no-frills' account either with 'nil' or very low
minimum balances as well as charges that would make such accounts accessible to
vast sections of population. The nature and number of transactions in such accounts
could be restricted, but made known to the customer in advance in a transparent
manner. All banks should give wide publicity to the facility of such 'no-frills'
account including in the local media indicating the facilities and charges in
a transparent manner. The
efforts of banks have enabled the common person to open bank accounts. However,
financial inclusion objectives would not be fully met if the banks do not increase
the banking outreach to the remote corners of the country. This has to be done
with affordable infrastructure and low operational costs with the use of appropriate
technology. This would enable banks to lower the transaction costs to make small
ticket transactions viable. A few banks have already initiated certain pilot projects
in different remote parts of the country utilizing smart cards / mobile technology
to extend banking services similar to those dispensed from branches. Banks are,
therefore, urged to scale up their financial inclusion efforts by utilizing appropriate
technology. Care should be taken to ensure that the solutions developed are (i)
highly secure, (ii) amenable to audit and (iii) follow widely accepted open standards
to allow inter-operability among the different systems adopted by different banks. 2.26. Exemptions The
provisions in the above paragraphs will not apply to: (i)
a deposit received by the bank: (a)
from the institutions permitted to participate in the Call/Notice/Term Money Market
both as lenders and borrowers, namely, all Scheduled Commercial Banks (excluding
RRBs), Co-operative Banks and Primary Dealers. (b)
for which it has issued a participation certificate; (c)
under Foreign Currency (Non-Resident) Accounts (Banks) Scheme, Resident Foreign
Currency Account and Exchange Earners Foreign Currency Accounts; (d)
under the Capital Gains Accounts Scheme, 1988, framed by the Government of India
in pursuance of sub-section (2) of Section 54, sub-section (2) of Section 54B,
sub-section (2) of Section 54D, sub-section (4) of Section 54F and sub-section
(2) of Section 54G of the Income-Tax Act, 1961; and (e)
under the Certificate of Deposit Scheme. (ii)
payment of interest on delayed collection of outstation instruments like cheques,
drafts, bills, telegraphic/mail transfers, etc. 2.27. Prohibitions No
bank should - (a) pay
interest on Current Account save as provided in paragraphs 2.8 and 2.17(b) above; (b)
pay countervailing interest on any current accounts maintained with it by its
borrowers; (c)
discriminatein the matter of interest paid on deposits, between one deposit and
another, accepted on the same date and for the same maturity, whether such deposits
are accepted at the same office or at different offices of the bank, except in
respect of fixed deposit schemes specifically for resident Indian senior citizens
offering higher and fixed rates of interest as compared to normal deposits of
any size, and single term deposits of Rs.15 lakh and above on which varying rates
of interest may be permitted on the basis of size of deposits. The permission
to offer varying rates of interest is subject to the following conditions: (i) The
permission to offer varying rates of interest for deposits of the same maturity
applies to single term deposits of Rs.15 lakh and above. Banks should, therefore,
offer the same rate of interest or different rates of interest for deposits of
Rs.15 lakh and above. For deposits below Rs.15 lakh of the same maturity the same
rate will apply. In this regard, it is clarified that it will not be in order
for banks to offer higher/differential rate of interest, as compared to other
deposits of similar tenure, on deposit schemes framed by them on the basis of
the Bank Term Deposit Scheme, 2006, announced by Government of India vide their
notification No. 203/2006 dated July 28, 2006. (ii)
Banks should disclose in advance the schedule of interest rates payable on deposits
including deposits on which differential interest will be paid. Interest rates
paid by the bank should be as per the schedule and should not be subject to negotiation
between the depositor and the bank. (d)
pay brokerage in the form of commission or gift or incentives on deposits in any
manner or in any other form to any individual, firm, company, association, institution
or any other person except - (i)
commission paid to agents employed to collect door-to-door deposits under a special
scheme. Banks have also been permitted to use the services of Non-Governmental
Organisations(NGOs)/ Self Help Groups(SHGs)/ Micro Finance Institutions(MFIs and
other Civil Society Organisations(CSOs) as intermediaries in providing financial
and banking services including collection of deposits through the use of the Business
Facilitator and Business Correspondent models. Banks may pay reasonable commission/
fee to the Business facilitators/ Correspondents, the rate and quantum of which
may be reviewed periodically. The agreement with the Business facilitators/ Correspondents
should specifically prohibit them from charging any fee to the customers directly
for services rendered by them on behalf of the bank. (ii)
inexpensive gifts costing not more than Rs.250/-; and (iii)
incentives granted to staff members as approved by the Reserve Bank of India from
time to time. (e) employ/
engage any individual, firm, company, association, institution or any other person
for collection of deposit or for selling any other deposit linked products on
payment of remuneration or fees or commission in any form or manner, except to
the extent permitted in sub-clause (i) of clause (d) above. (f)
launch prize/lottery/free trips (in India and/or abroad), etc. oriented deposit
mobilisation schemes. (g)
resort to unethical practices of raising of resources through agents/third parties
to meet the credit needs of the existing/prospective borrowers or to grant loans
to the intermediaries based on the consideration of deposit mobilisation. (h)
issue any advertisement/literature soliciting deposits from public highlighting
only the compounded yield on term deposits without indicating the actual rate
of simple interest offered by the bank for the particular period. Simple rate
of interest per annum for the period of deposit should be indicated invariably.
(i) pay interest on
margin money held in current account. (j)
pay interest on "deposit at call" receipts issued by it to the tenderers
(contractors) for submission to Government Departments/Semi-Quasi Government bodies,
local bodies, etc. against the money held in current account. (k)
accept interest-free deposit other than in current account or pay compensation
indirectly. (l) accept
deposits from/at the instance of private financiers or unincorporated bodies under
any arrangement which provides for either issue of deposit receipt/s favouring
client/s of private financiers or giving of an authority by power of attorney,
nomination or other-wise, for such clients receiving such deposits on maturity.
(m) grant advances against
fixed deposit receipts or other term deposits of other banks. (n)
(i) open a savings deposit account in the name of Government departments/bodies
depending upon budgetary allocations for performance of their functions/Municipal
Corporations or Municipal Committees/ Panchayat Samitis/State Housing Boards/Water
and Sewerage/Drainage Boards/State Text Book Publishing Corporations/ Societies/Metropolitan
Development Authority / State/ District Level Housing Co-operative Societies,
etc. or any political party or any trading/business or professional concern, whether
such concern is a proprietary or a partnership firm or a company or an association. Explanation
For the purposes of this clause, ‘political party’ means an association or body
of individual citizens of India, which is, or is deemed to be registered with
the Election Commission of India as a political party under the Election Symbols
(Reservation and Allotment) Order, 1968 as in force for the time being. (ii)
The above prohibition will not apply in the case of organisations/agencies listed
in Annex 3.
ANNEX
1 Rates
of Interest on Deposits held in Domestic/Ordinary Non-Resident(NRO) Accounts
[Percent
per annum] |
Category
of Account |
(i) |
Current |
Nil |
(ii) |
Savings* |
3.5 |
(iii) |
TermDeposits
(minimum period 7 days) |
Free |
* With
effect from the close of business in India on November 17, 2005, the rate of interest
on domestic savings account will also be applicable to NRE savings account.
ANNEX
2 Interest
rates applicable to deposits held in Non-Resident
(External) Accounts [para 2.2B(i)]
(i) |
Current |
Nil |
(ii) |
Savings
Account |
With
effect from the close of business in India on November 17, 2005, the interest
rates on NRE savings deposits should be the same as applicable to domestic savings
deposits instead of the LIBOR/SWAP rate for six months maturity on US dollar deposits. |
(iii) |
Term
Deposits |
(a)
With effect from the close of business in India on April 24, 2007, interest rates
on NRE deposits for one to three years should not exceed the LIBOR/SWAP rates,
as on the last working day of the previous month, for US dollar of corresponding
maturity (as against LIBOR / SWAP rates plus 50 basis points effective from close
of business on January 31, 2007). | | |
(b)
The LIBOR/SWAP rates as on the last working day of the preceding month would form
the base for fixing ceiling rates for the interest rates that would be offered
effective from the following month. | | |
(c)
The above changes in interest rates will also apply to repatriable NRE deposits
renewed after their present maturity period. | | |
(d)
With effect from 29.04.2003, the maturity period of fresh NRE deposits should
normally be one year to three years. This will also apply to NRE deposits renewed
after their present maturity period. In case, a particular bank, from its Asset
Liability Management point of view, wishes to accept deposits with maturity of
more than 3 years, it may do so provided the interest rate on such long term deposits
is not higher than that applicable to 3 years NRE deposits. |
| |
(e)
For the purposes of operational convenience, the interest rates should be rounded
off to the nearest two decimal points. For example, a computed interest rate of
3.676 per cent would become 3.68 per cent, and 3.644 per cent would become 3.64
per cent. | | |
(f)
FEDAI would quote/display the LIBOR/SWAP rates on the last working day of each
month using a web page that can be accessed by all the subscribers to the Reuters
Screen. The rates should be taken as the base rates for fixing ceiling on the
interest rates that can be offered effective from the following month. |
ANNEX
3 List
of organisations/bodies to which the prohibition contained in Clause
2.26(n)(i) of the directive will not be applicable
(1) |
Primary
Co-operative Credit Society which is being financed by the bank. |
(2) |
Khadi
and Village Industries Boards. |
(3) |
Agriculture
Produce Market Committees. |
(4) |
Societies
registered under the Societies Registration Act, 1860 or any other corresponding
law in force in a State or a Union Territory. |
(5) |
Companies
governed by the Companies Act, 1956 which have been licensed by the Central Government
under Section 25 of the said Act, or under the corresponding provision in the
Indian Companies Act, 1913 and permitted, not to add to their names the words
‘Limited’ or the words ‘Private Limited’. |
(6) |
Institutions
other than those mentioned in clause 22(n)(i) and whose entire income is exempt
from payment of Income-tax under the Income-Tax Act, 1961. |
(7) |
Government
departments / bodies / agencies in respect of grants/ subsidies released for implementation
of various programmes / Schemes sponsored by Central Government / State Governments
subject to production of an authorization from the respective Central / State
Government departments to open savings bank account. |
(8) |
Development
of Women and Children in Rural Areas (DWCRA). |
(9) |
Self-help
Groups (SHGs), registered or unregistered, which are engaged in promoting savings
habits among their members. |
(10) |
Farmers’
Clubs – Vikas Volunteer Vahini – VVV. |
Annex
4 List
of directives/circulars/instructions which have been consolidated
in the Master Circular on
'Interest Rates on Rupee Deposits held in Domestic/NRO/NRE Accounts'
|